Savings, Retirement & America’s Financial Fragility

Employers are responding to employees who need help with finances

by Brian Cosgray

Mr. Cosgray is Cofounder and CEO of Double Net Pay, a leading-edge financial wellness app that fully integrates with employer payroll providers to automatically pay employees’ bills and fund savings goals in line with employee paycheck cycles, and provide employees with a clear view of remaining funds for discretionary use. Visit

It’s become nearly impossible to read a news or industry trade publication without seeing an article about Americans’ lack of retirement savings. Nearly equally prevalent are articles about Americans’ lack of financial health and the impacts of the resulting stress.

The U.S. retirement savings crisis continues to worsen is the conclusion of The Continuing Retirement Savings Crisis, a report based primarily on an analysis of the Survey of Consumer Finances from the U.S. Federal Reserve System.

The study analyzes workplace retirement plan coverage, retirement account ownership, and household retirement savings as a percentage of income, and estimates the share of working families that meet financial industry recommended benchmarks for retirement savings. Among the key findings:

  • The median retirement account balance for all households – with/without retirement accounts – is $2,500 for all working-age households and $14,500 for near-retirement households. More than half (62%) of working households, age 55-64, have retirement savings less than 1x their annual income; far below the amount needed to maintain their standard of living in retirement.
  • Two-thirds (66%) of working families fall short of conservative retirement savings targets for their age and income based on working until age 67– even after counting households’ entire net worth. The Federal Reserve System’s Report on the Economic Well-Being of U.S. Households in 2014 reveals that approximately 47% of the 5,896 respondents polled in October and November 2014, wouldn’t be able to cover an emergency $400 expense without selling something or borrowing money. While that marks an improvement from 52% in 2013, the report states that this result shows many Americans are “ill-prepared for a financial disruption.” Additional results attesting to Americans’ financial fragility:
  • 24% report that they, or family members living with them, have experienced a financial hardship in the past year; 27% of these received financial assistance from family members or friends
  • Only 45% have set aside an emergency or rainy day fund that would cover three months of expenses
  • 32% are not prepared for a three-month financial disruption and could not cover their expenses in such a situation, even by borrowing

Loans against 401(k)s growing

One symptom employers take as a measure of employee financial stress is loans taken against 401(k) plans. In 2014, based on analysis of 13 million investors, Fidelity reported that one in five of its 401(k) investors (22.5%) borrow against their retirement savings, up from 18.7% in 2000.

More than two million investors have outstanding loans, and nearly one million took out loans in the past year. A new LIMRA study – Financial Triage: Assessing Financial Wellness – concludes that household finances cause more stress than personal health or work issues. Nearly half (42%) of respondents reported that household finances cause “somewhat high” or “very high” stress levels compared with other areas of their lives. Personal health or work issues were considered the second highest source of stress (29%).

Consumers with the highest stress levels are looking for basic financial education like budgeting, reducing debt and understanding employee benefits. Effective financial wellness programs should address these fundamental topics, as well as retirement planning and other long-term interests

A look at respondents’ financial situation helps explain the high levels of stress. The study reveals that:

  • 42% have no rainy-day savings
  • only 18% are debt-free
  • while 60% of non-retirees are saving for retirement, only 32% have a long-term financial plan

On the positive side: 8 of 10 respondents have an interest in at least one area of financial education, with half seeking help with general budgeting. 

“Consumers with the highest stress levels are looking for basic financial education like budgeting, reducing debt and understanding employee benefits. Effective financial wellness programs should address these fundamental topics, as well as retirement planning and other long-term interests,” said Jennifer Douglas, Associate Research Director, Development Research at LIMRA.

Clearly, the results of these various surveys attest to the need for help managing daily household finances – paying bills, saving for necessities, such as emergencies and loss of income, and having a clear view of discretionary funds. It’s difficult for employees to grasp the importance of saving for retirement when they’re having difficulty managing their current financial needs.

Retirement is a multi-faceted issue

Michael DiCenso, Managing Director of Investment Strategies at Mesirow Financial, a Chicago-based financial services giant, observes, “Most people look at retirement as its own issue, however, it’s connected to all other financial aspects of life, like saving for children’s college and medical expenses.”

As a result, more employers are looking beyond helping employees with retirement savings plans. Increasingly, employers are expanding wellness programs to include financial guidance with the goal of improving their employees’ financial wellness and security. Companies such as Staples Inc., PepsiCo. Inc. and Meredith Co. have begun offering programs to improve their workers’ financial wellness, according to a recent article in The Wall Street Journal.

These financial wellness programs are modeled after physical wellness programs that invite employees to lose weight or undergo health screenings. They include finance classes, counseling sessions and even videogames designed to help staffers pay down debt, stick to a budget and invest for their retirement. Employers say the programs also boost productivity, citing research findings that suggest workers under financial strain can be distracted and absent from work.

We’re heartened to see employers turning their focus to their employees’ current cash management issues. That said, while educational and rewards programs may be helpful, they’re clearly not enough. Beyond financial education and assistance with budgeting, employees need tools that take the stress out of managing their daily finances. We are working daily with employers, ranging in size from 1,200 to 100,000 employees, who see the benefit of tools that automate short-term cash flow management and savings. These employers report that employees don’t want to hear what they need to do; they want it done for them.

Employees lead busy lives, juggling multiple work and family priorities. They need tools that make managing their daily finances and saving easier. Just as retirement plan participation is enabled and boosted with technology-enabled auto enrollment, we think using technology – an app – to automate personal finance best practices is key to helping employees achieve financial wellness. Apps that automate tasks are ubiquitous and popular among all demographics, and they don’t require behavior change that’s proven difficult to maintain.

An actionable, device-agnostic solution that does the work for employees requires a minimum amount of input from them and enables them to focus on the more pressing demands of their work and families. ♦